As a CERTIFIED FINANCIAL PLANNER™ professional at Northington Investment Group, we often find ourselves working with small business owners on various small business planning issues. These conversations normally take on a pattern: What’s the problem, Why is it important to address these problems? , and how do we fix it? Join me as I sit down with Certified Public Accountant, Mr. Clay Glasgow with JPMS Cox, PLLC here in Little Rock, Arkansas as we tackle these challenges for small business owners.

The What? The key question to ask yourself as a small business owner is what will happen to your business in case of the three D’s?

DEATH

DISABILITY

DIVORCE

The How? Having a funded Buy/Sell agreement that answers all three of these questions is critical to the successful navigation and protection of what is often your biggest asset, your business.

The Why? I have asked my good friend and trusted Northington Investment Group referral partner Mr. Clay Glasgow, Certified Public Accountant and business valuation specialist at JPMS Cox, PLLC here in Little Rock, Arkansas about the importance of having a current and accurate business valuation completed as part of any prudent, risk reduction strategy for a small business owner with a formally funded buy/sell agreement.

Clay Glasgow: I have a lovely wife, five energetic children, and an old golden retriever. Little Rock has been my home for the past 15 years and I have had the pleasure of being a part of a terrific team at JPMS Cox team for my entire career. I find joy and satisfaction in helping my clients win in their businesses and in their lives.

Stephen Northington: Why is it important for the small business owner who is reading this Northington Investment Group blog post to have an accurate, current business valuation completed?

Clay Glasgow: A business valuation helps a small business owner develop an investment mindset toward their business. It’s easy to get lost in the weeds and not spend enough time thinking about the big-picture. A quality business valuation helps an owner take a step back and think strategically by providing crucial insight into what drives the business’s value, what risks are present that might be hurting the value, and what opportunities could be capitalized on to increase value.

Stephen Northington: Do you often see gaps in what the business is worth on paper vs. the perceived value from the small business owner? And how does this become problematic in the long term?

Clay Glasgow: Yes, it’s only natural that a business owner might have an overly optimistic expectation of what their business is worth. I mean, I think my kids are the cutest in the world, so others must see that too, right? (They really are the cutest, by the way). The reality is, beauty is in the eye of the beholder, and a business is only worth what someone else is willing to pay for it. The value to someone else is probably not the same as the value to the person who has invested their own blood, sweat, and tears into building the company. This could become a major problem when the time comes to sell the business and the owner is relying on the proceeds for retirement or other opportunities. If they are unable to sell it for what they expect, their life plans may be thwarted. A business owner should know the value of their business and implement a plan to grow its value long before the time comes to exit the business.

Stephen Northington: Clay, as a small business owner, if I have not taken steps to create a buy sell agreement, what risk am I creating for myself and my business?

Clay Glasgow: A buy-sell agreement governs how and at what price ownership will transfer if something happens to one of the owners. A multi-owner small business without a well-crafted buy-sell agreement is like a land mine waiting to be stepped on. Something unexpected could happen at any time to force one or more of the owners out of the business. The chances are high that this will be a tough situation – death, disability, owner dispute, etc. It is difficult to come to an agreement about what to do with that owner’s interest in the heat of such a situation. Although it may feel awkward for owners to discuss these issues upfront, the disasters that can arise in the wake of unexpected and unplanned-for events are much worse. I’ll also point out that not all buy-sell agreements are created equal, so it is important for business owners to periodically review their agreements with their advisors and attorneys to make sure it aligns with their overall business objectives.

Stephen Northington: We always want to leave our readers one or two ideas that they can take back to their business that help reduce risk and protect their businesses. What can you share with them today that can make a difference for them and their small business?

Clay Glasgow: One way to reduce risk is to have written policies and procedures in place. This helps to ensure that business processes are carried out consistently and efficiently. It’s also important to have an employment agreement with a covenant not to compete in place with key employees. It could be catastrophic for a key sales person to leave a company and open a similar business across the street. Finally, small business owners should strive to make themselves as obsolete to the business operations as possible. That may sound counterintuitive, but by sharing knowledge and responsibilities with employees, the owner can increase the chances that the business will continue profitably if something were to happen to the owner. Risk reduction strategies such as these not only protect the business, they can add real value to the business. The less risk a potential buyer perceives in a business, the more they will be willing to pay.

As a CERTIFIED FINANCIAL PLANNER™ professional, I hope you enjoyed our blog interview with Mr. Clay Glasgow, C.P.A with JPMS Cox here in Little Rock, AR. Clay can be reached at 501 978 8316 or Cglasgow@JPMSCOX.com . The essence of small business planning at Northington is helping small business owners manage risk. Ask us how we can impact your business and let’s start a conversation. Stephen.Northington@lpl.com or 501.993.0167